Amortization of goodwill arising from an acquisition

Keywords: Mazars, Thailand, Accounting, Goodwill, Amortisation, Acquisition, TFRS, NPAEs

8 May 2023 

As a result, an entity using the TFRS for NPAEs that had goodwill arising from an acquisition booked that goodwill as an intangible asset with an indefinite useful life. The entity usually amortized the goodwill for 10 years, as paragraph 188 of the previous version of the TFRS for NPAEs stated that an intangible asset with a definite useful life should be amortized over that useful life, and that, for an intangible asset with an indefinite useful life, an entity should define its useful life as equal to 10 years.

However, an updated version of TFRS for NPAEs was published in the Royal Gazette on 14 November 2022 and is applicable to annual reporting periods beginning on or after 1 January 2023. These revised standards give a clear explanation and accounting treatment for goodwill arising from an acquisition in paragraph 25.8.

A business combination is a transaction or other event in which an acquirer gains control of one or more businesses. This can occur in various ways, such as by transferring cash, incurring liabilities, issuing equity instruments, etc. The entity needs to assess whether the transaction meets the definition of a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, then the entity must book the transaction as the acquisition of an asset. If the assets acquired are a business unit, the entity can choose to record the transaction by:

1. recognizing each asset acquired, such as inventory, property, plant and equipment, and intangible assets in accordance with the relevant chapter of the revised TFRS for NPAEs; or

2. applying the acquisition method indicated in TFRS 3, “Business combination”, except for goodwill.

If goodwill arises from the acquisition, the amortization of goodwill will be as follows:

• Goodwill arising from an acquisition must be amortized over its useful life. Goodwill with a definite useful life must be amortized over that useful life. In contrast, goodwill with an indefinite useful life must be amortized for 20 years.
• Goodwill must be amortized using the straight-line method, except when the purchaser has reliable evidence that there is a more suitable amortization method under the circumstances.
• The amortization of goodwill must be recognized in profit or loss.
• Goodwill needs to be recognized using the cost method less accumulated amortization and any allowances for losses on a decline in value.

Scenario

In the past, an entity has already amortized goodwill with an indefinite useful life for a certain period of time – for example, 8 of 10 years – up to 31 December 2022. During the transition period under the revised TFRS for NPAEs, how should this previously recognized goodwill be treated?

Response

Paragraph 28.19 of the revised TFRS for NPAEs states that, at the beginning of the first annual period in which these revised standards are applied, the carrying value of goodwill arising from a previous business combination which was previously recognized must be what it would have been as of the first day of that period under the entity’s previous accounting policies. When determining that value, the entity shall eliminate the carrying value of any accumulated amortization of that goodwill and the corresponding decrease in goodwill. The entity must not make any other adjustments to the carrying value of goodwill.